Mahawangsair Co. is an international airline which flies to destinations all over the world. Mahawangsair Co experienced strong initial growth but in recent periods the company has been criticised for under-investing in its non-current assets. Extracts from Mahawangsair Co’s financial statements are provided below. Statements of financial position as at 30 June: 20X1 20X2 RM000 RM000Assets Non-current assets Property, plant and equipment 174,000 317,000Intangible assets (note ii) 16,000 20,000 190,000 337,000Current assets Inventories 490 580Trade and other receivables 6,300 6,100Cash and cash equivalents 22,100 9,300Total current assets 28,890 15,980Total assets 218,890 352,980 Equity and liabilities Equity Equity shares 3,000 3,000Retained earnings 41,800 44,100Revaluation surplus Nil 145,000Total equity 44,800 192,100 Liabilities Non-current liabilities 6% loan notes 150,400 130,960 Current liabilities Trade and other payables 4,250 10,4806% loan notes 19,440 19,440Total current liabilities 23,690 29,920Total equity and liabilities 218,890 352,980 Other EXTRACTS from Mahawangsair Co’s financial statements for the years ended 30 June: 20X1 20X2 RM000 RM000Revenue 159,000 154,000Profit from operations 18,600 12,300Finance costs (10,200) (9,200)Cash generated from operations 24,310 18,480 The following information is also relevant:(i) Mahawangsair Co. had exactly the same flight schedule in 20X1 as in 20X2, with the overall number of flights and destinations being the same in both years.(ii) In April 20X2, Mahawangsair Co. had to renegotiate its licences with five major airports, which led to an increase in the prices Mahawangsair Co. had to pay for the right to operate flights there. The licences with ten more major airports are due to expire in December 20X2, and Mahawangsair Co. is currently in negotiation with these airports. Required: Calculate the following ratios for the years ended 30 June 20X1 and 20X2:(i) Operating profit margin;(ii) Return on capital employed;(iii) Net asset turnover;(iv) Current ratio;(v) Interest cover;(vi) Gearing (Debt/Equity).

Ratio analysis is the concept where various financial ratios are calculated to understand the…

Answered: hawangsair Co. is an international…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter10: Fixed Assets And Intangible Assets

Section: Chapter Questions

Problem 23E

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Mahawangsair Co. is an international airline which flies to destinations all over the world. Mahawangsair Co experienced strong initial growth but in recent periods the company has been criticised for under-investing in its non-current assets.

Extracts from Mahawangsair Co’s financial statements are provided below.

Statements of financial position as at 30 June:


				20X1		20X2
				RM000		RM000
Assets
Non-current assets
Property, plant and equipment	174,000		317,000
Intangible assets (note ii)		16,000		20,000
				190,000		337,000
Current assets
Inventories			490		580
Trade and other receivables		6,300		6,100
Cash and cash equivalents		22,100		9,300
Total current assets		28,890		15,980
Total assets			218,890		352,980
Equity and liabilities
Equity
Equity shares			3,000		3,000
Retained earnings			41,800		44,100
Revaluation surplus		Nil		145,000
Total equity			44,800		192,100

Liabilities
Non-current liabilities
6% loan notes			150,400		130,960

Current liabilities
Trade and other payables		4,250		10,480
6% loan notes			19,440		19,440
Total current liabilities		23,690		29,920
Total equity and liabilities		218,890		352,980

Other EXTRACTS from Mahawangsair Co’s financial statements for the years ended 30 June:

				20X1		20X2
				RM000		RM000
Revenue				159,000		154,000
Profit from operations		18,600		12,300
Finance costs			(10,200)		(9,200)
Cash generated from operations	24,310		18,480

The following information is also relevant:

(i) Mahawangsair Co. had exactly the same flight schedule in 20X1 as in 20X2, with the overall

number of flights and destinations being the same in both years.

(ii) In April 20X2, Mahawangsair Co. had to renegotiate its licences with five major airports, which

led to an increase in the prices Mahawangsair Co. had to pay for the right to operate flights

there. The licences with ten more major airports are due to expire in December 20X2, and

Mahawangsair Co. is currently in negotiation with these airports.

Required:

Calculate the following ratios for the years ended 30 June 20X1 and 20X2:

(i) Operating profit margin;

(ii) Return on capital employed;

(iii) Net asset turnover;

(iv) Current ratio;

(v) Interest cover;

(vi) Gearing (Debt/Equity).

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